Superannuation can be one of the most tax effective ways to build your retirement nest egg. There are a range of strategies you can consider to boost your super savings.
Consolidate your super
If you’ve had several jobs since you started working, you may have money in more than one super fund. More than one super fund means you could be paying unnecessary fees and insurance premiums on each one. Combining all your super funds into one can make your super easier to track, simpler to manage and ensure your savings are working hard for you.
Keep in mind, certain lost super accounts with balances of less than $2,000 (as well as the balances of members not able to be identified by their fund), have been automatically drawn together by the Australian Tax Office (ATO) to reduce your account fees. In addition, from 1 July 2013, the Government started paying interest linked to the Consumer Price Index (CPI) on all lost super accounts reclaimed from the ATO. So your super savings will keep pace with inflation.
Track down your super
One way to find out where your super is located is by checking the statements you have received from each of your previous super funds or by calling your past employers. If you can’t trace your super, it may be classified as ‘lost’. Your super may be considered ‘lost’ if:
- Your fund is not able to contact you and no rollovers or contributions have been made in the past year.
- You’ve been a member for at least two years and no contributions or rollovers have been made in the previous five years.
You can check whether any unclaimed or lost super belongs to you by visiting the ATO SuperSeeker website ato.gov.au/super or calling 13 28 65. You’ll need to provide your name, date of birth and tax file number. You might find a handy sum to boost your super!
Do some housekeeping and make sure your super fund has your tax file number (TFN). This will make it easier to find lost super, move your super between accounts and receive super payments from your employer or the Government. Once you’ve tracked down all your super, you need to decide which super fund best suits your personal and financial circumstances. Before deciding on a fund, compare the costs and benefits of each.
There are three important things to consider before moving your super:
- Will an exit fee be deducted from your investment?
- Are there any investment and/or taxation implications?
- Will you need to make new insurance arrangements
Currently, most employees receive super guarantee (SG) contributions from their employer of at least 9.5%1 of their salary. Adding to these contributions directly from your gross (pre-tax) salary can be an easy and tax-effective way to top up your super. This is called salary sacrifice.
Some of the benefits of salary sacrifice are:
- It’s simple, automatic and consistent.
- You do not pay income tax on salary sacrifice contributions to super (up to certain limits). Your super contributions are generally taxed at 15%, which may represent a significant tax saving, particularly if you are on the highest marginal tax rate of 49% (including the Medicare levy of 2% and Budget Repair Levy of 2%).
- By making a salary sacrifice contribution, you can reduce your taxable income.
- The difference in taxation may mean more money is available to invest in super than if you were to receive the money as after-tax income and then invest it.
You should check with your employer first to see whether salary sacrifice arrangements are available and that adopting a salary sacrifice strategy will not reduce the amount of SG contributions your employer pays on your behalf.
Take advantage of the government co-contribution
To encourage you to save for your retirement, if your total income3 is $35,454 pa or less and you make a $1,000 after-tax contribution to super, the Government will contribute up to $500 to your super.
The amount of government co-contribution reduces by 3.33 cents for every dollar you earn over $35,454 pa and ceases once your total income reaches $50,454 pa.
When determining eligibility for the government co-contribution, earnings that are salary sacrificed to super and reportable fringe benefits come under the definition of total income. If you fit within the income thresholds outlined above, and satisfy some other conditions, contributing to your super from your after-tax salary before the end of financial year may be a great way to top up your super, and get an extra boost from the Government.
If you would like to know about strategies to maximise your super, talk to a Roberts & Morrow Financial Services Adviser. They can tailor an appropriate strategy to suit your individual circumstances.
General Advice Warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.